Everyone on the planet is impacted by COVID-19. Our hearts go out to all the sick and to those who have lost this fight and their families. We are extremely thankful to the brave health care workers who are fighting this battle on the front lines and will continue to fight to save lives during chaos. We will do everything we can to support you.
Every investor in the U.S. and abroad is asking the same question, Is this going to be a short bear market or a long brutal one? The truth is nobody knows. Trying to time the top or the bottom of any market repeatedly is literally impossible. History is littered with those lucky souls who have successfully done it once. Most of them spend the rest of their careers trying to replicate their feat, only to be disappointed repeatedly. When we are making investment decisions, we try not to focus on things that we can’t control, and we try to ignore things that don’t matter. Instead, we want to focus on the intersection of the things that matter and the things we can control. COVID-19’s impact on the market is beyond all of our control but, make no mistake, it matters. Trying to time the market is within our control, but ultimately there isn’t enough data to suggest it can be done reliably and thus it doesn’t matter.
History suggests that investors who have a diversified basket of stocks and other “Offense” assets have been rewarded if they hold for long-time periods. If investors bought after drawdowns of more than 20%, they have been rewarded more handsomely over time, even if they saw their value drop by another 20-40% before the bottom. Today’s market can best be summed up with this example: Imagine a farmer’s market where sellers outnumber the buyers by five to one, with an hour to go until the market closes. You want to be a buyer and enjoy the same high-quality food for less money. That’s why market prices are collapsing right now for all securities, even those of the highest quality. Institutions, especially those with too much debt or with investors who are asking for their money back, have no choice but to sell whatever they can at whatever price they can in order to raise cash. Buying into this type of forced selling has yielded positive returns throughout history. We have no idea where this market is going over the next few weeks nor, for that matter, over the next year. But we do know that investors are being paid a lot more to own stocks and corporate bonds today than they were a month ago.